Recency Bias in investing
Recency Bias is pretty simple. Just think it this way “your short term memory dominates your long term memory” Usually it is the tendency that what happened in recent past will continue in the future. Consider an example of flipping a coin. We all know that the probability of any of the two possible outcomes in […]
Narrow Framing Bias
We don’t see things as they are; we see them as we are.” — Anaïs Nin Narrow Framing Bias: Narrow framing means taking a decision without considering all the factors that can affect a particular decision. Example: Mr. Harshil wants to buy a Phone the only factor that he thinks of is the brand though […]
Sunk cost fallacy
Sunk cost is a cost that has already been incurred in the past and can’t be recovered. For example: You booked tickets to watch a movie but you caught viral infection, still you went to the movie to justify the money you spent to purchase the tickets instead of taking rest. So, have you justified your […]
Yoga & Investments : Striking Similarities
Did you know that the practice of yoga and investments have a lot of things in common and you could incorporate certain yogic techniques in your financial life to beat the stress associated with it. Discipline – Only if you are fully committed while doing yoga will you be able to reap rewards. Similarly, you […]
Behaviour Biases
At its core, behavioral finance attempts to understand biases in human behavior when it comes to personal finance. It combines social and psychological theory with financial theory as a means of understanding how price movements in the securities markets arises independent of any corporate actions (changes in the intrinsic value of the stock). One of […]
Important Diwali Lessons
Deepavali, the festival of light, is one of India’s biggest festivals. The festival marks the return of Lord Rama after defeating the demon King Ravana. We start our Diwali festival with offering our prayers to Lord Ganesha for welfare and prosperity and Goddess Lakshmi for wealth and wisdom. All the positive qualities that you may […]
Don’t Leave Results To Beginner’s Luck
Beginner’s luck plays an important role in our day-to-day life. For example in cricket, we have seen many new cricketers giving top-class performance on their debut game only to fade into oblivion thereafter. Such experiences are also a part of the gambling world. Those who strike luck earlier play more and more till they lose […]
Availability bias causing decision bias.
It is a behavioral finance concept which describes how our environment can shape our perceptions.Let’s go back to 2008-09, wherein many people lost their jobs, economy was under stress and house prices were depreciating from their peak. Consider an example wherein, Mr Dumb who is unemployed due to slowdown in the economy. This person is less likely […]
Side effects of having an ownership bias while investing.
In 2010, Mr. Dumb bought a flat for his personal on Link Road, Bandra. He paid Rs 2.5 crores for that flat and expected the price to go up by 50% in 4 years. Now in 2014, there is a buyer who intends to purchase his flat for Rs 3 to Rs 3.25 crores but […]
Focus hard on investment process and not on its past “outcomes”
These days, Sensex is at new high and investors are still bullish on pharma and FMCG sectors. Just because in last 5 years these two sectors performed well does not mean they will continue to do well in future too.Such thinking is absurd. Most investors fall victim to this behaviour of analysing past outcomes while taking future investment decisions. […]
